Redundancy: what you need to know

Redundancy: what you need to know

While there is no definition of what constitutes a “redundancy” in the current legislation, it covers the situation where, for instance:

  • An employee’s employment is terminated because the position filled by the employee is, or will become, surplus to the needs of the employer, or
  • Where the position filled by the employee has been significantly altered.

It is not a redundancy where employees are simply redeployed or where the name of a position changes, but where employees will perform substantially similar duties.

How do you make someone redundant?

Redundancy is a termination of employment and as with other terminations, an employee may bring a personal grievance claiming unjustified dismissal. It follows that redundancies must be for genuine reasons, and need to be carried out in a procedurally fair manner (i.e. involving consultation, notice etc.).

The test in the current legislation is:

“Whether the employer’s actions, and how the employer acted, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred”

In terms of genuineness, the Courts have interpreted this as meaning:

  • The focus must be on the position and not the employee occupying the position,
  • Employers must do more than simply claim that it is a genuine business decision,
  • Financial justifications must exist and cannot be flawed,
  • Where there are genuine business reasons but also underlying personality or performance issues, it must be demonstrated that the redundancy was genuine (e.g. by paper trail demonstrating consideration of reorganisation),

The normal procedural steps involved in a dismissal should also be taken. For instance:

  • Clauses in the employment agreement (if any) must be adhered to,
  • Consultation with affected employees is usually required,
  • Criteria upon which a decision is based should be provided,
  • That criteria should be based on relevant considerations only,
  • Employees should be given time/warning to acquire legal representation,
  • Alternatives should be considered (e.g. redeployment)

Failing to undertake redundancies in accordance with the law could result in the relevant employee being reinstated, or Court orders for the payment of wages, and/or damages for hurt and humiliation.

What do you need to do in terms of your employment agreements?

Redundancy was previously provided for in legislation. Now that it isn’t, employers need to deal with the possibility in their employment agreements by providing detail around the particular procedure that will be followed.

Employers should also be aware that redundancy provisions are not just a safeguard against bad economic times, but play an important role upon the sale of a business.